The Administration Must Name Chinese Defense Companies in the United States

The recent approval of permanent normal trade
relations (PNTR) with China is good policy. Open trade will
increase the flow of American goods and technology to China,
helping to advance U.S. economic interests and foster the
development of a Chinese middle class that increasingly enjoys
economic freedom and less dependence on the state.

However, more American exports going to
China also presents a greater risk that civilian U.S. technology
with military applications could be sold to companies affiliated
with the People's Liberation Army (PLA), which could then be used
to improve its weapons-making capabilities. Now that the issue of
PNTR has been settled, it is time to address this serious concern.
To help ensure that the transfer of sensitive technology is not
occurring, Congress enacted legislation in 1998 requiring the
Clinton Administration to publish a list of Chinese companies in
the United States that do business with the PLA.2 To date, the
Administration has failed to comply with that law.

Congress had several reasons to mandate in
the fiscal year (FY) 1999 National Defense Authorization Act (P.L.
105-261) that the Administration produce such a list.

First,
Chinese military-related companies operating within the United
States may have an easier time bypassing U.S. export control laws,
giving the PLA access to American technology that should be
withheld on national security grounds.3 Such technology
ranges from electronic communications to precision manufacturing
machinery and lasers.

Second,
in the hands of the PLA, this technology could be used to increase
China's ability to threaten America's friends and allies, and even
U.S. troops stationed abroad.

The
debate in Washington over export controls to prevent the sale of
such technology to China was temporarily set aside during
consideration of PNTR. Congress should take up this matter now by
demanding that the Administration comply with the law and publish
the required list so appropriate action can be taken to ensure that
sensitive dual-use American technology is not being acquired by the
PLA. Such a list would assist U.S. licensing officers in
adjudicating applications for the export of dual-use technologies,
allow American companies to make informed decisions about whether
to partner with certain Chinese counterparts, and help interested
Americans make informed decisions about what products they wish to
buy.

THE GROWING RISK
Despite President Clinton's assertions about China during summits
with Jiang Zemin in both Washington (1997) and Shanghai (1998),
China is not a "strategic partner" of the United States. Its
aggressive behavior continues to threaten peace and stability in
Asia. Beijing's focus on military modernization, its refusal to
eschew the use of force against Taiwan and in the South China Sea,
and its belligerent threats to use nuclear-tipped missiles to deter
the United States from coming to Taiwan's defense in a cross-Strait
conflict heighten concerns that the PLA may benefit from U.S.
technology transfers.

China's military modernization program
relies heavily on foreign technology that it acquires through
direct purchase or reverse engineering. If appropriate precautions
are not taken by the Administration to restrict the sale of
dual-use technology, a higher volume of trade with China could
increase the chances that such sensitive technology will get into
the PLA's hands.

Dual-use civilian technology--products
that have both civilian and military applications, such as
supercomputers, telecommunications equipment, and lasers--can
easily be adapted to serve less benign purposes, including the
development of ballistic missiles. China's acquisition of dual-use
technology and diversion of this technology to military use has
serious implications for U.S. national security. China already has
threatened to use force against the democratic Republic of China on
Taiwan, and bitterly resents that the United States sent two
aircraft carrier battlegroups to the Taiwan Strait when the PLA
conducted live-firings of missiles there in 1996. Moreover, Beijing
recently vowed to respond militarily to any attempt by U.S. armed
forces to assist Taiwan in the event of an aggressive act by
China.4 If China does
attempt to solve the Taiwan issue by force, the U.S. military will
be drawn into the conflict.5

The
risk that U.S. technology could make the PLA more effective against
the United States in such a confrontation means that the United
States must carefully monitor high-technology sales to China.
Negligence on the part of the Administration could lead to an
unacceptable scenario in which U.S. technology is used against
American soldiers. The risk increases if those responsible for
controlling high-technology exports do not know which Chinese
companies operating in the United States may have a direct
connection to the Chinese military.

WHAT THE LAW REQUIRES
President Clinton signed the FY 1999 defense authorization bill
into law on October 17, 1998. Section 1237 of this act stipulates
that the Administration must produce and publish a list of
companies associated with the PLA:

Not
later than 90 days after the date of the enactment of this Act, the
Secretary of Defense shall make a determination of those persons
operating...in the United States...that are Communist Chinese
military companies and shall publish a list of those persons in the
Federal Register.

The
act then directs the U.S. Secretary of Defense to consult with the
Attorney General, the Director of Central Intelligence (DCI), and
the Director of the Federal Bureau of Investigation (FBI) to
prepare the list.

The
Clinton Administration has yet to publish this list. The deadline
for compliance in P.L. 105-261 was January 15, 1999. More than six
months after the deadline had passed, some Members of Congress
wrote to the President and asked him to explain why the list of
PLA-affiliated companies had not been published.6 The letter also
asked what measures had been taken to ensure the veracity of the
list: "[W]hat human and financial resources have been dedicated to
compliance with the law?" "What interagency consultative processes
have been instituted to ensure that the list of People's Liberation
Army companies is accurate?" "What additional steps has your
administration taken to ensure that the list you are obligated to
produce reflects the best information available to the United
States Government?"

Secretary of Defense William Cohen
responded to this request on August 13, 1999, assuring
Representative Christopher Cox (R-CA) and other Members of Congress
that an effort was underway "to identify, within the executive
branch, an agency which might more appropriately facilitate
compliance with Section 1237 while also complying with other
Federal law and protecting sensitive sources and methods."7 But over a year
after he made this statement, no list of PLA companies in the
United States has been produced.

Figuring out which Chinese companies
operating in the United States do business with the PLA was made
more difficult when President Jiang Zemin announced the
government's divestiture of PLA companies and their conversion to
civilian management.8 However, China had
already made it clear that it planned to use such companies to
improve military production and modernization. In a 1994 book
discussing China's defense conversion from military to civilian
production, senior Communist Party and defense industry-related
officials explained:

During this government agency reform, in
order to achieve this transformation of the operational mechanism
of military-industrial enterprises, all the military-industrial
ministries...have been switched to industrial corporations as
economic bodies and industrial groups. This major reform of
military-industrial management system will certainly promote the
growth of military-industrial enterprises.9

This
past May, two years after Jiang Zemin announced that businesses
were being "officially de-linked" from the PLA, Vice President and
Central Military Commission Vice-Chairman Hu Jintao declared that,
while "the work of withdrawing business activities had been
basically completed," several "shortcomings exist."10 In July 2000, the
Chinese government demanded that the PLA dispose of its mobile
phone network because the PLA leadership had delayed divestiture by
more than 18 months. To date, there are still around 100 to 200
similar cases of companies still controlled by the PLA. According
to the respected Far Eastern Economic
Review, "It [the PLA] is keeping some enterprises that provide
cover for intelligence-gathering."11

By
not complying with the law, the Clinton Administration is leaving
unaddressed serious policy concerns surrounding China's
proliferation of weapons and diversion of civilian technology to
PLA industries.

THE ADMINISTRATION'S
NON-COMPLIANCE
The Administration assigned the Defense Intelligence Agency the
task of compiling and producing the list of Chinese defense-related
companies operating in the United States. In July 1999, the DIA
called the task "unachievable."12 According to the
DIA,

On
22 July 1998, Chinese Premier Jiang Zemin announced that "the
Chinese army would no longer engage in commercial activities." As
of 15 December 1998, all business ventures of the Chinese People's
Liberation Army (PLA) and the Chinese People's Armed Police (PAP)
were "officially" de-linked from the Chinese military. [Therefore,
a listing of companies] cannot be readily accomplished, and indeed
may not be possible if the Chinese military has complied with the
government order.

The
DIA further asserted that publication of a list in the Federal Register "would reveal sources and
methods of collection." In addition, it said, since the PLA and PAP
are no longer involved in business, the corporations on the list
"might include entities that have since been sold to U.S. persons,
which falls beyond the purview of the Defense Intelligence Agency."
The DIA concluded that other agencies, such as the FBI or the U.S.
Department of Commerce, were better suited to the task.

Moreover, in his August 1999 letter to
Representative Cox, Secretary Cohen stated that additional
investigation of companies formerly associated with the PLA might
be in violation of existing U.S. laws. President Clinton
acknowledged Cohen's response in a September 7, 1999, letter to
Representative Cox, in which he stated: "I asked the Secretary of
Defense to respond to your specific questions, and I understand
that he has written recently to do so...."13

On
September 21, 1999, more than eight months after the deadline
established in P.L. 105-261, Members of Congress wrote to President
Clinton again and demanded a more substantive explanation for his
Administration's failure to comply with the law.14 Neither the
President nor the Secretary of Defense has responded to that
letter. It is unknown whether another agency has been identified or
whether an interagency process has been set up so that the
Administration can comply with the act and publish the required
list.

WHY IDENTIFICATION IS
"ACHIEVABLE"
Ironically, as the Appendix to this paper shows, both the DIA and
the Commerce Department have indeed been able to produce these
lists in the past.15 As recently as
June 15, 1998, the Department of Defense published as a Defense
Intelligence Reference Document a PLA organizational chart
specifying the defense-industrial corporations controlled by the
PLA.16 Though some of
those companies may since have changed their names or been
"officially de-linked" from the PLA, the same
intelligence-gathering protocol used by the DIA to identify these
companies in 1998 should be used to identify any Chinese
military-related companies today.

Moreover, despite the DIA's concern that
publishing a list in the Federal
Register would "reveal sources and methods of collection," no
U.S. laws were violated when the Defense Department published its
previous lists in 1995 and 1998. Nor were the sources and methods
of intelligence collection it employed compromised.

Even
the Bureau of Export Administration at the U.S. Department of
Commerce was able to produce a list of companies in May 1995. And
similar but smaller lists have been published by non-governmental
organizations--organizations that operate with significantly fewer
resources than the federal government enjoys.17 Clearly, the DIA's
claims that compiling a list of Chinese companies in the United
States that do business with the PLA is "unachievable" are
misleading.

WHAT MUST BE DONE
The Clinton Administration should comply with the law and publish
the list of companies required by P.L. 105-261. The President
should determine the necessary interagency process to deal with any
conflicts over divisions of responsibility within the executive
branch that may be encountered in accomplishing this task.

The
list will enable Congress and the Administration to ensure that
export controls keep up with technological developments and that
sensitive technology is not traded to countries that could then use
it in some way against the United States. Once the executive branch
has released the list, American companies can exercise corporate
responsibility by complying with all export regulations and
assessing whether their involvement with PLA-related companies
might put Americans, U.S. troops, or U.S. allies and friends at
risk.

CONCLUSION
Granting PNTR and opening up trade with China is good policy.
Publishing a list of Chinese companies that do business with the
PLA is also good policy. It will reduce both the risk to U.S.
military forces stationed around the world and the chances that
sale of American technology to a Chinese military-related company
operating in the United States could be approved by mistake.

Compiling the list might not be easy, but
failing to compile it could cost American lives. The Clinton
Administration owes it to the American people to uphold the law and
identify these companies.

As recently as June 15, 1998, the federal
government published lists of Chinese companies that do business
directly with the PLA. This appendix includes the 1998 Department
of Defense list published by the Defense Intelligence Agency, the
1995 DIA list, and a 1995 list published by the Bureau of Export
Administration in the U.S. Department of Commerce. The PLA
departments that were identified on that list as doing business
with these companies are included in parentheses.

U.S. Department of Commerce, 1995 Bureau
of Export Administration List20

China Yuan Wang Group Corp.

China North Industries Group

China National Nuclear Corp.

China Aviation Industry Corp.

China State Shipbuilding Corp.

Ministry of Machinery Industry

China Aerospace Industrial Corp.

China State Shipbuilding Corp.

China National Nuclear Corp.

China Aerospace Corp.

Ministry of Machinery Industry

Endnotes

1.The author thanks Paolo Pasicolan,
Research Assistant in the Asian Studies Center at The Heritage
Foundation, for his assistance with this analysis.

2.See Public Law 105-261,
Section 1237.

3.A "Communist Chinese
military company" is defined in P.L. 105-261 as any entity
("person") identified in either of two Defense Intelligence Agency
(DIA) publications and any other entity owned or controlled by the
PLA and engaged in providing commercial services, manufacturing, or
exporting. The DIA documents referred to in the act include
VP-1920-271-90, dated September 1990, and PC-1921-57-95, dated
October 1995, or any update of these publications. The DIA updated
these publications in "China's International Defense-Industrial
Organizations," Defense Intelligence Reference Document
DI-1921-60-98, published on June 15, 1998. See Appendix, infra.

4.Beijing issued a
particularly strident and threatening White Paper concerning Taiwan
on February 21, 2000. See Taiwan Affairs Office, Information Office
of the State Council, People's Republic of China, "White Paper--The
One China Principle and the Taiwan Issue," February 21, 2000.

5.The Taiwan Relations
Act of 1979 states that any conflict in the Western Pacific would
be a grave threat to American interests. See P.L. 96-8, Section
2(b4). Further, it states that the United States will "make
available to Taiwan such defense articles and defense services as
may be necessary to enable Taiwan to maintain a sufficient
self-defense capability."

7.U.S. Secretary of
Defense William Cohen, letter to Representative Christopher Cox,
Chairman Republican Policy Committee, U.S. House of
Representatives, August 13, 1999.

8.President Jiang Zemin
ordered this in July 1998, but it still is not implemented. See
Susan Lawrence, "A Model People's Liberation Army," Far Eastern Economic Review, July 13,
2000, p. 14. See also Beijing Xinhua Domestic Service in Chinese,
"PRC Meeting on Closing Army Businesses," FBIS-CHI-2000-0525, May
25, 2000.

17.See, for example,
"China's People's Liberation Army: Where to Find PLA Companies in
America, What Products the PLA sells in America, and Who Are the
PLA's Customers?" AFL-CIO Food and Allied Services Trades
Department, 1997. See also Students for a Free Tibet, University of
Missouri chapter, Web site at http://www.umt.edu/asum/sft/boycott.htm.

18.U.S. Department of
Defense, Defense Intelligence Agency, "China's International
Defense-Industrial Organizations," Defense Intelligence Reference
Document, DI-1921-60-98, June 15, 1998. The Heritage Foundation
makes no independent assessment of the reliability of this or the
following lists. Nor does The Heritage Foundation attest to whether
any of the companies listed have been de-linked after these lists
were published, since that judgment can be made only by the United
States government and its intelligence services.

Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."

Sign up to start your free subscription today!

Sorry! Your form had errors:

About The Heritage Foundation

The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.

Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More